Franchising And Globalization

Franchising has proven to be one of the most important methods of doing business in today’s world, especially for small and medium size enterprises. It has passed through trial and error that resulted from alternative business relationships such as Agency “the right to sell a product”, Distribution “the right to distribute a product” and Licensing “the right to use a brand name.”  Franchising has demonstrated to be a more comprehensive practice by providing the “business system,” which guarantees the commitment to adhere to the performance standards and operating methods.

Franchising will continue to be a popular means of doing business especially with the ever-increasing talk on globalization and its intrinsic and escalating efficiency of communication channels through the technology of the information era and the popularity of e-commerce, which will consequently enhance the effectiveness of communication between the franchisors and franchisees allover the world.

Why Franchising?

The question of “why franchising in particular” may rise but the answer may be summarized by highlighting the various strategic, financial and operational benefits for the franchisor companies granting master franchises in other countries, where they will be able to expand and multiply their units based on the fact that other parties will take the investment risk in the welcoming country. These benefits include minimization of raw material cost, enhanced cash flow, strengthening the market research and product development, which reflects on a superior product that has the ability to compete in local and international markets.

Additionally, franchising guarantees uniformity and harmony of operating procedures, interior and exterior designs, product display and even sales techniques, which intensifies the corporate image of the retail stores and increases the popularity of products. All will reflect on an added value to the franchisees where they benefit from the operating system and the marketing power of the brand name. Franchising also qualifies the franchisor companies to develop the training programs that are necessary to raise the employees capabilities in both company-owned and franchised units, build powerful control standards and increase work efficiency at all levels.

Franchising is a labor-intensive industry

The growth of franchising in worldwide markets will help to create jobs for young graduates. For example, franchising creates 170,000 jobs every year in the United States of America. Additionally, franchising will help in developing the indigenous labor force through the training provided in franchisor/franchisee arrangements.

Furthermore, franchising gives women the opportunity to work from home through small investments in the form of "Home-Based Businesses." Doing so, she can have a source of income while attending to bringing up her children and taking care of her family.

The ultimate choice

One of the utmost benefits of franchising is splitting the investment risk and increasing the opportunity to locate product distribution channels where agency and licensing arrangements do not allow benefiting from those advantages. Moreover, the entry of such international companies into local markets on their own makes them vulnerable to the risk of direct investment. Consequently, franchising will remain their ultimate option under the umbrella of globalization.

Moving in both directions

On the other side of the coin, the entry of franchisor companies into targeted markets and competing with national brands will motivate many of the local businesses to re-organize its structure and develop its product quality to be able to compete with the international companies. This will systematically lead to a better value products and services, which will eventually lead to a better economies.

Also, the entry of international companies opens new horizons in front of the local business owners to seriously consider embarking their concepts on major franchise development programs and expand their formula regionally and internationally, which will increase national incomes through the fees and royalties obtained from the franchisees in other countries.

The future challenge

The understanding of globalization and its inherent challenges such as information uprising, the use of modern technologies in communication and the opening of the local markets to new production and marketing techniques will bring about challenges to use the maximim intelligence and managerial intellect to look for new systems capable of confronting the inevitable coming severe competition in certain markets. The ability to do so and the desire to continually position itself as competent concepts through building appropriate systems will never come without the employment of franchising as a globally long proven successful system which will continue its prosperity confidently into the new millennium.